PVS FINDS CHALLENGES, OPPORTUNITIES IN THAILAND

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BANGKOK, Thailand - While many U.S. companies are pulling back in Southeast Asia amid a tumultuous regional economy, Detroit-based PVS Chemicals Inc. sees challenges and long-term opportunities by remaining aggressive.

For now, its 3-year-old liquid ferric chloride plant south of Bangkok operates at only 35 percent of capacity, because of lower-than-anticipated demand for its product.

Built in a joint venture with Thai-owned Asian Chemical Co. Ltd., plans for the plant were based on marketing forecasts of what municipal customers would need for their water-treatment plants - before the Thai economy started to crumble last summer.

Suddenly, money to buy water-purification chemicals tightened up in a nation where enforcement of water-quality and environmental laws isn't a top priority, despite strict regulations on the books.

``We're sitting here with lots of unused capacity,'' said Dennis Rutkowski, president of PVS Chemicals Inc. (Asia). The annual capacity of the plant, situated in an industrial park in Chachoengsao province, is 60,000 solution tons of ferric chloride and, with minimal additional investment, that could be expanded to 100,000 tons, he said.

PVS also maintains an office in a high-rise building in Bangkok's gem and jewelry district.

The company currently has foreign operations in China, Canada, Belgium, Mexico and Bermuda, as well as Thailand. Overall, the parent company, its subsidiaries and its joint ventures have about 1,000 employees, 225 of them in Michigan, and estimated 1998 sales of $187 million.

The joint venture began in 1992, when Asian Chemical Co. was looking to grow and Thailand boasted a strong economy. The company, one of the country's largest producers and exporters of industrial chemicals and equipment, also was hoping to relocate its existing operations, Rutkowski said, and a marriage with PVS was consummated.

About half the plant's sales are within Thailand. The rest goes to New Zealand and to such Asian markets as Singapore, India and Hong Kong.

Revenue from the plant was about $2.3 million in 1997 and is expected to be more than $2.9 million this year.

The plant has about 31 employees and operates two shifts, five days a week. At full capacity, employment would approach 50, with round-the-clock operations, according to Rutkowski.

While many other U.S. businesses are reconsidering or retrenching their Asian operations, PVS is exploring additional opportunities in Thailand and in the region.

``We're looking at expanding the businesses we're involved with in Asia, and we're looking to expand to new business areas,'' said Roy Reynolds, the general manager for business development at PVS (Asia).

For example, the company expects to make a final decision this summer about a high-purity sulfuric acid plant in Malaysia.

``It would take one of our core businesses we produce in the United States and use technology we can bring to the table,'' Reynolds said.

He said other prospective new operations, joint ventures and strategic investments in the region also would relate to PVS core businesses, such as water treatment chemicals.

Devaluation of Thailand's baht, currently trading at 41.22 to the dollar, and other Asian currencies is a plus for U.S. companies seeking acquisitions and willing to take a long-term view, said Reynolds and Rutkowski. Although the value of PVS's existing Thai plant has dropped with the baht in the past year, devaluation means more buying power for the American dollar.

They call it a good time to make strategic acquisitions because basically sound but financially strapped businesses in Southeast Asia need infusions of support in U.S. dollars.

``The volatility makes it a good time to get in,'' Reynolds said.

The Chemical Manufacturers Association, a national trade organization, notes that the U.S. chemical industry is active in the global marketplace, in Asia and elsewhere.

``We're seeing more and more companies setting up facilities in these countries,'' said Jared Smith, the association's manager of media communications. ``There's a need out there for chemicals, and they're taking advantage of these opportunities.''

For PVS, the motivation to acquire plants in the region is cost-effectiveness. It's too expensive to export chemicals from plants in Detroit and the Midwest, Rutkowski said, and competitors from Japan and elsewhere are vying to serve what are envisioned as growing markets.

``We don't want to miss out on these markets. All the global companies are interested in these markets, and the Japanese are the most established,'' he said.

``People don't want to sell a family business, especially when they see it not getting as much value as they've put in,'' Reynolds said.

``They resist selling for reasons of pride. They look at the book value, what they put in. We look at market value and cash flow.''

Another key question for U.S. companies such as PVS is available infrastructure. For example, Rutkowski said, Thailand's roads are not laid out well, and the country's rail system is not well developed. Production from the joint venture plant is shipped in bulk to customers by truck or freighter.